Ireland's sovereign borrowing costs rise amid expectation of further interest rate hikes

European Central Bank to continue to raise interest rates in fight against inflation

ECB chief economist Philip Lane, the former Irish Central Bank governor, over the weekend added to the hawkish sentiment by saying the ECB could raise interest rates next year. Picture: Sam Boal/RollingNews.ie

The market cost of borrowing for Ireland and for other governments across Europe rose on Monday on expectations the European Central Bank is intent on pushing official interest rates higher again in the fight against inflation.

The yield on Ireland's 10-year bond rose to 2.38%, up significantly in the session. The implied cost of borrowing for many governments also rose. 

The cost of borrowing and for repayment in 10 years for France was only slightly lower, at 2.35%, while the German and Italian yields traded at 1.80% and 4.09%, respectively. 

Other eurozone government bond yields also traded higher as investors prepared for another large US Federal Reserve rate hike and several other central bank meetings this week.

The Fed is widely expected to raise rates by 75 basis points, or three quarters of a point, on Wednesday, while markets are pricing in about a 20% chance of a 1% hike in a bid to tame inflation.

"Investors' focus will be on the new [Fed's] dot plot of interest-rate projections," Francesco Maria Di Bella, fixed income strategist at UniCredit, said.

A number of ECB officials, including its chief economist Philip Lane, the former Irish Central Bank governor, over the weekend added to the hawkish sentiment by saying the ECB could raise interest rates next year. 

The Bank of Japan and Bank of England also meet this week. The yield on the British 10-year bond traded at 3.15%. 

• Additional reporting Reuters